Home Building 360: For Architects, Downturn is All About Survival

Architecture firms have laid off workers, closed offices, and filed for bankruptcy protection as their builder clients have cut back or failed.

If there’s any small consolation for builders struggling to survive this recession, it may be that they’re not alone. Architecture firms have felt the burn too--particularly as builders have shifted their focus to unloading existing inventory rather than hatching new plans.

Perhaps the most dramatic indicator of design sector devastation has been job loss. Workforce reductions of 50% or more became commonplace and unavoidable during the worst of the downturn. Such was the case for Knudson Gloss Architects, a full-service firm based in Boulder, Colo. that whittled its staff from 28 people down to 10. “We took pay cuts and cut some positions through attrition,” says founding principal Jerry Gloss. “When it came to layoffs, we had to consider not only creativity, but versatility, positive attitude, and whether or not someone was low-maintenance. Just because someone is talented doesn’t make them a good employee.”

Some larger firms have shuttered entire offices. Memphis-based powerhouse Looney Ricks Kiss had nine offices nationwide and 240 employees at its peak, but was down to four offices and a staff of 47 when it filed for Chapter 11 bankruptcy protection earlier this year. The firm, which is now reorganizing, saw its gross income fall from $33.7 million in 2008 to $14.9 million in 2009, according to the filing.

“Much of our work involves private-sector developer clients, and they have been hit hard by the contracting marketplace and the lack of financing,” managing principal Frank Ricks said in a prepared statement. “Over the past two years, we have seen many large projects placed on hold or abandoned altogether.”

As a whole, the architecture business has seen an 18% workforce reduction since the middle of 2008, according to estimates from the American Institute of Architects (AIA), although that number may not reflect registered architects who are underemployed and working part-time, or those who lost their jobs and have since started new studios.

Despite some signs of improvement, the industry isn’t out of the woods yet, according to the latest AIA Architecture Billings Index, which tracks activity (or lack thereof) at firms across the country. The June ABI rating was 46.0, up slightly from 45.8 the previous month, but still reflects a continued overall decline in demand for design services (any score above 50 indicates an increase in billings). The index has not risen above the halfway mark since January 2008.

Business survival strategies amidst the slump have been varied. Some architects who previously worked exclusively for custom clients, such as Middleburg, Va.-based Russell Versaci, a celebrated classicist, have parlayed their expertise into creating modular, affordable plans for the masses.

A handful of the bigger production housing firms in Southern California have addressed revenue issues by taking on overseas work. Product designs for foreign clients represent a sizable piece of business at Irvine, Calif.-based JZMK Partners, whose portfolio now includes residential work in 15 countries. Dahlin Group, also in Irvine, recently opened full service offices in Beijing and Hangzhou, China.

Some smaller firms, meanwhile, have focused their energies on retooling their expertise to maintain alignment with big builders’ shifting domestic strategies. “Previously the big publics were not interested in doing infill or anything under 100 units,” notes Kevin Crook, whose eponymous boutique firm Kevin L. Crook, Architect, counts Beazer and Lennar among its clients. “Now they are doing infill all the way, and they’re taking on projects as small as 30 units. Anywhere there are finished lots ready to go, they are looking at them. Our forte has always been detached homes, but now I’m looking at doing denser and denser attached stuff.”

Crook says that staying lean--his studio is now a scrappy six employees, down from twelve--has made it easier to ride out the downturn. “We cut our staff by half, but we did it early on, and we also set aside a good chunk of money to carry us through,” he says. “Having low overhead helps. Finding work for six people is a lot easier than finding work for 100.”

James Wentling, whose Philadelphia-based firm does both custom and production work and maintains a successful house plans division, says that the “small and nimble” model also has its advantages where private builders are concerned. “Attached product is more clogged up with financing problems right now,” he says. “Before the recession, we were doing 60% attached vs. 40% detached. Now it’s the opposite. It’s a lot harder to get financing for a six- to eight-unit multifamily building than for a single-family house. For the privates, the banks want to get in and out with a short-term exit strategy.”

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Not surprisingly, hard times have also compelled many an architecture studio to diversify its portfolio by taking on institutional, government, or commercial work. Knudson Gloss is currently doing site planning for a local microbrewery, which Gloss says is a fun project that has brought in a little extra cash and kept staff morale buoyant. (Beer helps.)

“We have also used the downtime to educate ourselves and get certifications, such as LEED, NAHB Green, and certified active adult,” says Gloss, who believes that demand for energy efficiency and universal design will reach a tipping point when economic conditions improve. "We’re really focusing heavily on the fundamentals of good design. Our deal is that we are trying to establish a leadership position on key issues so we’ll be in good shape when things turn around.”

When that turnaround will happen is anyone’s guess. Many architects interviewed for this story believe the recovery has already started, but that it’s likely to be a volatile time for the housing industry and the businesses that depend upon it.

“It’s been picking back up and I think by next spring, things will be better, but the progress will be in fits and starts,” Wentling predicts. “You’ll have a couple good months and then a couple bad ones. I think it’s going to be that way for years. The danger is having a couple good months, assuming everything is fine, and then getting yourself into obligations you can’t manage. Being conservative is a good idea.”

So is being ready to move on a dime, Gloss believes. “It's been an ongoing adjustment entering into the third year of this," he says. "There's no predictability, which means you can't plan. Only a fool predicts the future. You just have to be ready for the opportunities when they come.”

Jenny Sullivan is a senior editor covering architecture and design for BUILDER.